Over the past year or so, many fintechs mushroomed to give small loans and borrowers fell for them, given the quick turnaround time and limited documentation required. A search on Google Play Store app store for the keywords “instant loan” displays over 200 apps that are willing to put cash in your bank account.
All went well while the going was good. In the hurry to get easy loans, many overlooked the interest rates, penalties and the track record of these lenders. Many started with borrowing small amounts ( ₹500 to ₹50,000), but as their dependency rose, they ended up taking multiple loans until their cash flows dried up and they started defaulting. That’s when a happy experience of getting credit on tap turned horribly sour.
In the app-driven microlending segment, the process of recovery has now turned into a nightmare for many borrowers. Unfortunately, while installing the app, borrowers must give it consent to access their contacts, which some aggressive lenders are now tapping to publicly humiliate borrowers.
Kolkata-based Madhushree Chowdhury, whose employer delayed her salary amid the lockdown, has personal loans from three fintech apps. The 26-year-old, who works with a travel firm, ended up defaulting on all. Though she asked for the Reserve Bank of India’s moratorium facility, lenders refused to do so. Instead, they threatened her with legal action. She is now trying to buy time until her salary resumes.
But Chowdhury’s experience has been all but smooth when compared with what Bengaluru-based Anjali Lepcha—who took several loans for her brother who was suffering from cancer—is going through. The 34-year-old beautician took loans from lenders that charge a high interest and have aggressive recovery practices. Some of the lenders accessed her contact list and started calling her friends and family members. They threatened her that they had made a copy of the photos on her phone. She received calls at 2.00-2.30 am asking for repayment of her dues. As some firms levy daily penal interest, her loans have ballooned.
Among multiple lenders that she took loans from, she said the aggressive ones included Timely Cash, Momo, CashMama, RupeeFast and CashBus.
In separate emails to Mint, CashMama and CashBus said their recovery and collection agents follow fair practices. “Any time customers bring any violation to our notice, we terminate the agent in question if the allegation is supported by evidence such as call recordings,” said a CashMama spokesperson.
“We have very strict guidelines to ensure that no such issues of customer harassment come up. This appears to be an attempt to defame the company,” said a CashBus spokesperson. Emails to the other lenders Lepcha borrowed from remained unanswered till the filing of this report.
Mumbai-based business owner Pravin Kalaiselvan, 25, had a similar experience with a lending app when he missed paying just one EMI. On Twitter, he found there were many like him. He started a forum called Save Them to bring all such borrowers together to act against the aggressive lenders.
“Borrowers have received fake FIRs (first information reports), warning letters from RBI and TransUnion Cibil, recovery agents have made WhatsApp groups of family members and abused people. Lenders are either not giving a moratorium or asking borrowers to pay the interest portion upfront. The penalties are higher than even that on credit cards which makes repayment difficult,” said Kalaiselvan.
Many of the smaller lending apps don’t have a website. Those who do, provide no information about the company. At best, there’s an email address and a phone number. Mint reached out to some of the bigger and popular lenders that borrowers had complained about on social media.
Clarifying about the high interest rates, Ilica Chauhan, vice-president, PC Financial Services Pvt. Ltd, owner of CashBean, said: “The company’s interest rate policy has been adopted by its board of directors after taking into account all necessary considerations (costs) associated with the business. Applicable charges are clearly detailed to all customers before the loan approval.” She dismissed complaints related to aggressive recovery agents as “fake”, carried out to damage their reputation.
On aggressive recovery tactics, Gaurav Jalan, founder and CEO, mPokket, said that there was only one case where a former recovery executive posted on the Facebook timeline of a borrower on his own accord. But it was sorted after the incident came to light. On higher interest rates and daily penalty, Jalan said, “These are only to discourage borrowers from defaulting. If they engage with us, we waive off the penalties on a case-to-case basis. We are also offering a moratorium depending on the financial problems of borrowers.”
Vivek Veda, chief financial officer, KreditBee, also said there were one or two stray cases of recovery agents acting up, but the company got to know about them and fired them. “We follow every social media post, investigate the claims and act on them,” said Veda.
On Twitter, many borrowers have complained about Kissht, one of the lenders Chowdhury took a loan from, not providing the moratorium. “When the regulations came out initially, it took the industry a few days to get full clarity on implementation. Once that came through, we implemented easy access to moratorium to all our customers,” said Krishnan Vishwanathan, founder and CEO, Kissht.
What to do
Beware of smaller entities: There has been a spurt of lending apps in the past year and most of them are small entities.
According to people familiar with the ecosystem, who did not want to be named, Chinese companies own many of these apps. These companies started looking at India after their government cracked down on peer-to-peer (P2P) lending firms back home. “The Chinese government started regulating P2P lending apps due to which thousands wound up their businesses and started looking at other markets,” said Veda.
In India, a lot of these firms are exploiting a regulatory loophole. Most of the Chinese firms have tied up with NBFCs as they need an NBFC licence to start lending. While RBI regulates NBFCs, the apps through which the lending and recoveries are made don’t come under its purview.
There were close to 10,000 NBFCs as of 29 February 2020, according to RBI data. Of these, only 803 have an asset size of over ₹100 crore.
Noida-based student Suraj Verma, 21, wrote to RBI complaining that mPokket is not offering moratorium despite repeated requests. He received a message that the company is not regulated by RBI and was advised to reach out to the registrar of companies.
Google Play Store doesn’t allow apps that offer loans with tenures below 60 days. “Around eight recovery agents, whose services were terminated, got in touch with me. Two of them said that Google had pulled out their employers from Play Store for violation of policies. But they relaunched apps under different names,” said Kalaiselvan. Mint couldn’t independently verify this.
Look before you borrow: While some opt for lending apps for convenience, others do so because they don’t meet banks’ lending criteria.
You must approach a bank first even if it involves paperwork or takes a bit of time. If these apps are the only option, go for a well-established lender and check its NBFC partner, interest rates, costs and penalties, besides other practices.
You can’t escape permitting the app to access your personal data, but an established lender is less likely to access it illegally as it has a reputation to protect.
While a quick loan can make things easier temporarily, it can cause a lot of stress later if you defualt, so borrow only if you need to.